Thursday, December 30, 2010

Stuck In Michigan

“The good people are the ones who flee first because they can go, they have talent, they have enough in the way of resources, and they have possibility of finding a job someplace else,” says Mr. Myers. “It’s the people who are least skilled and who are least educated who have to hang around. They can’t sell their house, they’re just stuck.”

Of particular concern is the possibility that the most economically vulnerable U.S. families might be unable to respond to local economic downturns by moving away. Figure 2 shows geographic mobility rates among a national representative sample of people displaced from a job at any point during the period from 2005 to 2008. Specifically, the figure displays the proportion of respondents who have moved to a different city or county as of January 2008. We break out these mobility rates by people’s educational attainment, which economists consider to be one of the best indicators of someone’s lifetime earnings prospects. The figure shows that around 16 percent of college-educated people who had lost a job had moved at some point following displacement compared to just 10 percent among high school dropouts and 11 percent among high school graduates.

Leaving economically distressed areas is good for household prosperity. Yet we set policy to tether the most vulnerable to one place. Discouraging geographic mobility is a bizarre practice. Initiatives designed to retain talent are akin lowering regional educational attainment rates. Plugging the brain drain erodes household wealth.

Brain gain is defined as a city’s or country’s attraction of talented people whose exceptional gifts and knowledge create new business and new jobs and increase that city’s or country’s economy. To some degree, all cities of all sizes, everywhere in the world, have a success story of brain gain. Someone had a good idea, and its implementation created new jobs in that town. Brain gain is the big-bang theory of economic development. The challenge leaders face is how to trigger brain gain in their cities.

It’s a new challenge, but an old issue. Twenty-five years ago, virtually every economist, liberal and conservative, forecast that the GDP of the United States would lose its first-place ranking and drop to third. News shows, newspapers, and business magazines predicted that Japan’s GDP would be around $5 trillion, Germany’s would be around $4 trillion, and the United States would fall to third at about $3.5 trillion by 2007.

The economists were partly right. Japan is at about $4.5 trillion and Germany’s at about $4 trillion, too. But they couldn’t have been more wrong about the United States. The country’s GDP didn’t fall. Over the last 25 years, it grew to $13 trillion. The best economists in the world were off by more than $10 trillion.